2018 (2) TMI 399 - AT - Service Tax

Revenue appeal dismissed, spare parts exempt from service tax under works contract; legal precedents cited

The Tribunal dismissed the Revenue's appeal, affirming the Commissioner (Appeals)' decision that spare parts used in maintenance services during the ... Levy of service tax - after Sales Service to the customers during the warranty period - Tax on the materials utilized in providing the service during the warranty period - Held that: - Under the works contract there can be no levy of service tax on the material component which have already been provided in the works contract-Determination of Value Rules. Further, under the Finance Act, 1994 there is no taxing power to tax the material component, in a works contract - appeal dismissed - decided against Revenue. Issues:Whether the respondent-assessee providing after-sales service during the warranty period is liable to pay service tax on materials utilized.Analysis:The case involved a dispute regarding the liability of the respondent-assessee to pay service tax on materials used in providing after-sales service during the warranty period on behalf of a manufacturer. The bills raised by the respondent-assessee for after-sales service revealed a composite claim under different categories. The respondent-assessee used spare parts purchased from the manufacturer during the warranty period for repairs, and the manufacturer reimbursed them after deducting a discount. A show-cause notice was issued proposing a demand for service tax along with penalties for the financial years 2005-06 to 2008-09.The show-cause notice was contested, and the demand was confirmed with penalties under the Finance Act, 1994. The respondent-assessee contended that the maintenance and repair contract with the manufacturer should be considered a works contract. The Commissioner (Appeals) held that spare parts used in maintenance services should be treated as sold, and since sales tax was paid on them, service tax cannot be levied. The Revenue appealed to the Tribunal, citing the test of 'dominant nature' from a Supreme Court ruling in a similar case.After hearing both parties, the Tribunal considered the nature of the contract and the relevant legal precedents. It noted that the Revenue's view of the contract as a works contract aligned with the Commissioner's decision. The Tribunal referred to the Determination of Value Rules and the lack of taxing power under the Finance Act, 1994 to tax material components in a works contract, citing a Supreme Court case. Consequently, the Tribunal found no merit in the appeal and dismissed it, granting the respondent-assessee any consequential benefits as per the law.